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Michelle is an award-winning chartered financial planner who holds the designation 'Fellow of the PFS' demonstrating her commitment to maintaining the highest standards of knowledge, ethical conduct, and professional practice. Michelle is also an accredited member of the Society of Later Life advisers. Michelle offers a fully personalised service tailored to each clients individual needs and goals, using an approach that was recognised and honoured by the Women in Financial Advice awards in 2021. Clients working with Michelle can expect a high level of professionalism, integrity and a lasting relationship built on trust and open communication
Michelle Boakes
Chartered Financial Planner
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What is a long-term care annuity?
Long-term Care Annuity – also called an immediate needs annuity or deferred needs annuity – is a policy that’s designed to pay out a pre-agreed, guaranteed income for life.
How does a care fee annuity work?
What you do is exchange a lump sum for the guaranteed income payment. You can also choose how much you want as an income. It’s usually based on how much income you’ve got coming in compared to your care fees – or your family member’s care fees.
You can also design the annuity to meet your personal circumstances, your needs and objectives. You can choose how often it gets paid, and whether you receive the same amount every month or if it increases. As we know, care costs tend to increase annually, and probably at a rate in excess of inflation.
You can also choose to have a guarantee. This way, should you or your loved one pass away within a certain amount of time, a percentage of the lump sum you invested comes back to the family as inheritance. There are lots of different options to explore.
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Who can get long-term care annuity?
At the moment the long-term care annuities available in the market are only really for people with a current care need. You would need to know exactly what your care costs are.
How do I get a long-term care annuity?
There are insurance companies that you can get quotes from direct, or you can go to an adviser. You’ll need a financial adviser with a specialist qualification to deal with long-term care needs. So look on the Financial Conduct Authority register or on the adviser’s website just to make sure that they do deal with long-term care needs.
What you’ll find if you go through an adviser is that they’re able to compare all the different ways of paying for the care to find the most suitable product for you.
How much does an immediate needs annuity pay out, and what is the cost?
The two things are completely linked. The cost depends on how much you want the annuity to pay out – so the higher the income you need, the bigger the lump sum you’ll have to put in.
It also depends very much on the individual’s circumstances, particularly their health and longevity expectations. So it really is very unique to each individual how much they cost. Some people might think it’s a reasonable lump sum to exchange for a decent amount of guaranteed income, while for other people it won’t work out quite so favourably.
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Are immediate needs annuities worth it?
I think they definitely are for some. They’re more right for some people than for others. I couldn’t say that immediate needs annuities or long-term care annuities are particularly suited for a certain group of people. It is very much dependent on the individual’s circumstances: what kind of care they would like and whether they would like to stay in their own home or move into a care facility.
It will depend on how often they need care and also how much capital they have available. There are definitely benefits in having a guaranteed income, but there are some drawbacks as well. So you really need to get good advice about whether there’s a better option for you or if annuity is going to be the right option for you.
What are the risks of immediate needs annuities?
The main drawback would be if you pass away early on into the policy term, which means you get less back than you paid in. Also, if your health improves and you no longer need the care, the annuity will continue to be paid directly to you.
One of the key benefits of an immediate needs annuity is if it’s paid to the care provider, the income is tax-free. Whereas if the income is paid to you, it’s taxable – so that can be a bit of a drawback too.
It can’t really be cancelled, either. So after the initial 30 days guaranteed period, you can’t decide it’s not something you want any more – you have to have it for life. So we need to be certain it’s the right option for you.
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Why should I see a financial adviser for a long-term care annuity?
The key thing I would stress to anybody looking at annuities to pay for care, is that a financial adviser will run you through all of the ways that care could be paid for. There are around nine different ways, so we can help you see which one’s right for you.
Our advice on all the options will help you make a fully informed decision about how to pay for your care. You’ll know all the drawbacks, all the benefits and be comfortable that you’ve made the right choice.
It all comes down to your individual situation. I could have two almost identical clients in terms of age, health and financial situation, but two totally different answers on the right way to pay for care.
Michelle has been sharing her knowledge on the best ways to cover the cost of live in care. To find out more click here.
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THE VALUE OF PENSIONS & INVESTMENTS AND ANY INCOME FROM THEM CAN FALL AS WELL AS RISE. YOU MAY NOT GET BACK THE AMOUNT ORIGINALLY INVESTED.
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